Lululemon rejects allegation it misled shareholders

A
shopper walks out of the Lululemon Athletica store in New
YorkThomson
Reuters

By Jonathan Stempel

NEW YORK (Reuters) - Lululemon Athletica Inc says its nearly
year-long struggle with bad publicity linked to slowing growth
and a messy product recall did not reflect any corporate intent
to defraud shareholders, and that an expanded lawsuit suggesting
otherwise should be thrown out of court.

In a filing on Tuesday night in the U.S. District Court in
Manhattan, the Canadian yoga wear retailer said it promptly
addressed quality control problems as they became apparent, and
updated investors in real time about the impact.

It acknowledged that comments in November by founder and Chairman
Dennis "Chip" Wilson that some women's body shapes "just actually
don't work" with Lululemon yoga pants prompted much negative
press.

But it said none of this meant it owes shareholders money.

"While all of this makes for interesting reading," the company
said, "it does not constitute securities fraud."

Lululemon is seeking to dismiss an amended lawsuit accusing it of
misleading and defrauding shareholders between September 7, 2012
and January 10, 2014, just before shares of the company fell to a
two-year low after the company issued its second lowered earnings
forecast in a month.

Hannah Ross, a partner at Bernstein Litowitz Berger &
Grossmann, which represents investors led by the Louisiana
Sheriffs' Pension & Relief Fund, declined to comment on the
filing. The fund is based in Baton Rouge, Louisiana.

Shareholders accused Lululemon of hiding defects in its black
luon pants, which were recalled; concealing its inability to
address quality shortfalls; using deep discounting to boost
market share, and concealing plans to replace Christine Day as
chief executive.

Last month, Day stepped aside and was replaced as chief executive
by former TOMS Shoes president Laurent Potdevin. Wilson is
stepping down this year as non-executive chairman. Day and Wilson
are defendants in the shareholder lawsuit.

Wilson, in a separate filing on Tuesday, said he had last held a
management role at Lululemon in January 2012, and that
allegations that he "dipped in and out of daily affairs" did not
show he knew about, or was complicit in, any fraud.

He also said his alleged sales of $184 million of Lululemon stock
during the class period was not fraudulent, as the lawsuit
contended, because they were made under a prearranged trading
plan and not suspicious in timing or quantity.

Last month, after Lululemon issued the second reduced earnings
forecast, Chief Financial Officer John Currie called the quality
issues "a real wake-up call" and admitted that 2013 was a tough
year.

"You always hear the phrase that any PR is good PR. What we
learned is that's not always the case," he said. "We're taking it
seriously. Like, we get it."

The case is In re: Lululemon Securities Litigation, U.S. District
Court, Southern District of New York, No. 13-04596.

(Reporting by Jonathan Stempel in New York; Editing by Peter
Galloway)